The National Labor Relations Board (NLRB) announced on Thursday a final rule to withdraw its Biden-era joint employer rule, reinstating a standard adopted in 2020 during the first Trump administration. This move effectively reverts the NLRB’s operational definition of joint employer status to a framework that places stricter conditions on establishing such a relationship. The decision comes after a federal judge previously vacated the 2023 rule, deeming it "contrary to law" and "arbitrary and capricious" following a legal challenge from business groups. The NLRB stated that the 2023 rule, which was published last year, never took effect and that the 2020 rule remains the operative standard for determining joint employer status under the National Labor Relations Act (NLRA). The agency also cited good cause for issuing Thursday’s rule without prior public notice and comment, with the withdrawal of the 2023 rule being effective immediately. The board characterized its action as "ministerial" and stated it would have "no separate economic effect."
A Tumultuous History of Joint Employer Doctrine
The concept of joint employer status has been a recurring point of contention and policy fluctuation between recent presidential administrations. The NLRA does not explicitly define "joint employer," leading to varying interpretations by the NLRB over time, reflecting the differing legal philosophies of the administrations appointing its members. This ambiguity has created a dynamic legal landscape for businesses, particularly those utilizing franchise models, staffing agencies, or complex supply chains.
Under the now-withdrawn 2023 rule, entities were considered joint employers if they "share or codetermine essential terms and conditions of employment." This broad interpretation encompassed situations where entities possessed or exercised either direct or indirect control over these terms. The NLRB first articulated this expansive standard in its 2015 Browning-Ferris Industries decision. This ruling significantly broadened the scope of joint employer liability, allowing for a joint employer finding even if control was not directly exercised, but merely reserved or implicitly held.
The 2020 rule, established under the Trump administration, sought to reverse the rationale of the Browning-Ferris decision. It narrowed joint employer status to only those entities that "possess and exercise substantial direct and immediate control" over an employee’s essential terms of employment. Furthermore, it explicitly limited the list of essential terms to specific factors such as wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. This 2020 standard emphasized a more stringent requirement for demonstrating joint employer liability, focusing on concrete and direct managerial oversight.
The 2020 Standard Reinstated: Key Provisions
Thursday’s final rule formally adopts the language and framework of the 2020 rule. It defines "substantial" direct and immediate control as that which has a "regular or continuous effect" on an essential employment term or condition, rather than one that is "sporadic, isolated or de minimis."
A key distinction from the 2023 rule is how indirect control is treated. While the 2020 rule acknowledges that indirect control can be probative of joint employer status, it is only considered to the extent that it "supplements and reinforces evidence of possession or exercise of direct and immediate control." This means that indirect influence or potential control, without a clear demonstration of direct and immediate oversight, is insufficient to establish joint employer status under the current framework.
The NLRB reiterated in its announcement that "Joint-employer status must be determined on the totality of the relevant facts in each particular employment setting." Crucially, it also stated, "The party asserting that an entity is a joint employer has the burden of proof." This places the onus on unions or employees seeking to establish joint employer liability to present compelling evidence of direct and immediate control.
Timeline of the Joint Employer Rulemaking Process
The history of the joint employer rule reflects a contentious battle between different administrative approaches to labor law.
- 2015: The NLRB, under the Obama administration, issues its landmark Browning-Ferris Industries decision. This ruling broadens the definition of joint employer, stating that indirect or potential control over essential terms of employment is sufficient to establish joint employer status. This decision has a significant impact on industries with complex labor arrangements, such as franchising and outsourcing.
- 2017-2020: During the Trump administration, the NLRB signaled its intent to revise the Browning-Ferris standard. This led to proposed rules and extensive public comment periods.
- February 2020: The NLRB finalizes its rule, establishing the stricter "substantial direct and immediate control" standard. This rule is intended to overturn the expansive interpretation of joint employer liability set forth in Browning-Ferris. The rule officially took effect in April 2020.
- March 2023: The NLRB, now under the Biden administration, publishes a new final rule that largely reverts to the broader standard articulated in Browning-Ferris, focusing on shared or codetermined terms of employment, including indirect control. This rule was scheduled to take effect in February 2024.
- October 2023: A federal judge in Texas issues a ruling that vacates the 2023 joint employer rule. The judge finds the rule to be "contrary to law" and "arbitrary and capricious," siding with challenges brought by business groups who argued the NLRB exceeded its statutory authority.
- December 2023: The NLRB announces its final rule, formally withdrawing the 2023 rule and reaffirming the 2020 rule as the operative standard. This action effectively reinstates the stricter standard for determining joint employer status.
Reactions and Implications
The NLRB’s decision to revert to the 2020 standard has drawn sharp criticism from labor advocates and support from business organizations.
Senator Patty Murray, Chair of the Senate Health, Education, Labor, and Pensions Committee, expressed strong disapproval of the NLRB’s action. In a statement to HR Dive, she argued that the 2020 rule "gives the biggest corporations cover to deny workers their ability to band together for better wages and working conditions and leaving millions of workers in the lurch, vulnerable to egregious violations of their rights." This sentiment reflects concerns that the narrower definition of joint employer will make it more difficult for workers to organize and bargain collectively, particularly in industries where multiple entities are involved in managing a workforce.
Conversely, business groups have generally welcomed the reinstatement of the 2020 standard. They argue that the broader interpretation of joint employer liability under the 2023 rule created uncertainty and increased litigation risk for businesses, especially franchisors and companies that contract with third-party service providers. The 2020 standard, they contend, provides a clearer and more predictable framework for business operations, allowing companies to engage with staffing agencies or franchise partners without undue fear of being held liable for the labor practices of other entities.
The Browning-Ferris Decision and its Continued Shadow
Adding a layer of complexity, the NLRB also announced earlier this week that it would reaffirm its 2015 Browning-Ferris decision. This specific action was taken at the direction of a federal court and pertains to the original case. However, the agency clarified that this reaffirmation "has no application to cases arising after the effective date of the Board’s 2020 joint employer rule." This means that while the legal precedent of Browning-Ferris is being acknowledged in its original context, the operational standard for determining joint employer status moving forward remains the stricter 2020 rule.
The implications of this ruling are significant for various sectors of the economy. Franchise businesses, which often rely on independent franchisees operating under a franchisor’s brand guidelines, will continue to be governed by the stricter standard. This means that a franchisor will likely not be considered a joint employer unless they can demonstrate substantial direct and immediate control over the day-to-day employment terms of the franchisee’s employees. Similarly, companies that outsource specific functions or utilize temporary staffing agencies will find it more challenging to be deemed joint employers, provided their involvement is limited to general oversight rather than direct management of essential employment terms.
The battle over the joint employer rule underscores the ongoing ideological divide in U.S. labor policy. The reinstatement of the 2020 standard suggests a continued emphasis on protecting businesses from broader joint employer liability, a stance favored by many industry groups. Labor unions, however, are likely to continue advocating for a more expansive definition, arguing that it is necessary to ensure fair treatment and bargaining power for all workers, regardless of the complexity of their employment structure. The legal and economic ramifications of this enduring debate will continue to unfold in the coming years.
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